"(Thursday) was the most bizarre day. You had this huge rally in the dollar but the big caps stocks rallied, and the Russell and mid-caps sold off. That's contra to the pattern we've been seeing. The intra-day movements are ridiculous. Why did we rally 10 S&P points in the last hour? ... These moves are tough to explain, and I think this is just a lot of noise ahead of earnings, to be honest," said Peter Boockvar, chief market analyst at Lindsey Group. Earnings season gets into full swing when banks and tech companies report next week.
The question among traders was how much of Thursday's inexplicable action had to do with the Fed. Minutes from the Fed's last meeting, released Wednesday, showed a divide among members on when to raise interest rates. After last Friday's weak March jobs report, market expectations moved to a first rate hike from the Fed in September or later.
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"I don't think that the markets are rethinking the Fed, but the minutes highlighted how far away the rates market is from the Fed. That's helping the dollar. The market is fundamentally biased to sell the euro," said Vassili Serebriakov, currency strategist at BNP Paribas. He said the euro hit a technical level of 1.0713 and kept falling.
"That was the kind of a level that if held, the technical picture could still be signaling a rebound. But now it's more consistent with renewed (euro) downside," Serebriakov said. He said underlying flows are going against the euro and into the dollar, due to quantitative easing by the European Central Bank. "Because of QE, money managers are shifting out of the euro and that's why you see the euro unable to hold its high."
"Newswise, we're watching the U.S., and flowwise, we're watching Europe," he said.
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"The minutes didn't contain anything new but the minutes were debating whether to hike in June, and market pricing is not even sure they're going to hike this year at all … so there's a gap," Serebriakov said.